180 | Just Group PLC | Annual Report and Accounts 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
22. INSURANCE CONTRACTS AND RELATED REINSURANCE continued For 31 December 2024, projected mortality rates are lower (versus 31 December 2023) in the short term, and higher in the long term. An age-standardised mortality rate for the population of England & Wales aged 50-89 for calendar year 2025 is 2.2% lower; whereas for calendar year 2035 it is 0.8% higher; and for 2045 it is 1.4% higher. For 31 December 2024, the average annual mortality improvement rate over the period 2025-35 is 0.8% p.a. (2023: 1.1% p.a.). Over the period 2035-45 the average annual mortality improvement rate is 1.1% p.a. (2023: 1.2% p.a.). The standard tables which underpin the mortality assumptions are summarised in the table below.
Product group
Entity
2024
2023
Modified E and W Population mortality, with CMI 2023 model mortality improvements Modified E and W Population mortality, with CMI 2023 model mortality improvements. Medically underwritten unchanged from 2023 Modified E and W Population mortality, with CMI 2023 model mortality improvements Modified PCMA/PCFA or modified E and W Population mortality with CMI 2023 model mortality improvements
Individually underwritten Guaranteed Income for Life Solutions
JRL, PLACL
Modified E and W Population mortality, with CMI 2022 model mortality improvements
Defined Benefit
JRL
Modified E and W Population mortality, with CMI 2022 model mortality improvements. Medically underwritten: Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, with modified CMI 2009 model mortality improvements for medically underwritten business Modified E and W Population mortality, with CMI 2022 model mortality improvements Modified PCMA/PCFA or modified E and W Population mortality with CMI 2022 model mortality improvements
Defined Benefit
PLACL
Care Plans and other annuity products
PLACL
Unchanged from 2023
Protection
PLACL
TM/TF00 Select
The long-term improvement rates in the CMI 2023 model are 1.5% for males and 1.25% for females (2023: CMI 2022 model with 1.5% for males and 1.25% for females). The period smoothing parameter in the modified CMI 2023 model has been set to 7.0 (2023: CMI 2022 model with 7.0). The addition to initial rates (“A”) parameter in the model is set to 0% (2023: between 0% and 0.25% depending on product). A 0% weighting has been given to 2023 CMI mortality experience (2023: 0% for 2022 mortality experience). All other CMI model parameters are the defaults (2023: all other parameters set to defaults). (iii) Discount rates All cash flows are discounted using investment yield curves adjusted to allow for expected and unexpected credit risk. For non-lifetime mortgage assets, this adjustment is comprised of an element based upon historic default experience and an element based upon current spread levels where both elements are relevant to the asset in question. The yields on lifetime mortgage assets are derived using the assumptions described below and also in note 16 with an additional reduction to the future house price growth rate of 50bps (2023: 50bps) allowed for. The yields on residential ground rents are derived using the assumptions described in note 16(d)(iv) and the adjustments set out in note 1.3 in light of the ongoing uncertainty associated with the government consultation regarding these investments. The overall reduction in yield to allow for the risk of defaults from all non-LTMs and the adjustment from LTMs, which included a combination of the NNEG and the additional reduction to future house price growth rate, was 56bps for JRL (2023: 58bps). During the year, the Group has aligned PLACL’s presentation of this reduction in yield with that of the JRL assumption. The PLACL assumption is 96bps (2023: 88bps on an equivalent basis). Discount rates at the inception of each contract are based on the yields within a hypothetical reference portfolio of assets which the Group expects to acquire to back the portfolio of new insurance liabilities (the “target portfolio”). A weighted average of these discount rate curves is determined for the purpose of calculating movements in the CSM relating to each group of contracts. At each valuation date, the estimate of the present value of future liability cash flows and the risk adjustment for non-financial risks are discounted using the yields from a reference portfolio based upon the actual asset portfolio backing the net of reinsurance best estimate liabilities and risk adjustment. The reference portfolio is adjusted in respect of new contracts incepting in the period to allow for a period of transition from the actual asset holdings to the target portfolio where necessary. Typically, this period of transition can be up to six months but is dependent on the volume of new business transactions completed. The target asset portfolio seeks to select the appropriate mix of assets to match the underlying net insurance contract liabilities. The target asset portfolio consists of listed bonds, unlisted illiquid investments and lifetime mortgages. The tables below set out rates at certain points on the yield curves used to discount the best estimate liability and risk adjustment reserves as at 31 December together with the weighted average discount rates applied to the new business cohorts for the principal insurance product lines. The discount rates used for the gross insurance and reinsurance contracts at the year end date are consistent, having been based on a single investment portfolio for each legal entity. The discount rates used for locking-in the CSM for the new business cohort are based on the interest rates applicable on the date of recognition for underlying business. For reinsurance: – In instances where reinsurance cover is in place when underlying contracts are written, the reinsurance CSM is calculated using discount rates as at the start of the relevant treaty notice period. – In instances where reinsurance is transacted subsequently to the underlying business being written, the reinsurance CSM is calculated using discount rates as at the start date of the reinsurance treaty.
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